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 Breaking Headlines

Shoe Carnival's 4Q Earnings Soar 154%

MARCH 16, 2006 -- Net earnings of Shoe Carnival (SCVL) for 4Q increased 154.2%% to $3.0 million. Diluted EPS increased to 22¢ from 9¢ per share last year. 4Q net sales increased 13.7% to $163.6 million. Comp-store sales increased 11.7% for the 13-week period. (Conference call details below.)

The gross profit margin for 4Q05 increased to 28.6% from 27.3%. 4Q SG&A decreased to 25.6% from 26.1% in last year's fourth quarter. Included in 4Q SG&A expenses is a charge of $821,000 for store closing costs related to FY05 store closings and impairment charges for three stores expected to be closed in FY06. In 4Q04, SCVL incurred $114,000 in store closing costs.

Net earnings for the 52-week FY05 increased 50.0% to $18.8 million, or $1.40 per diluted share, from $12.5 million, or 96¢ per diluted share for FY04. FY net sales increased 11.1% to $655.6 million. Comp-store sales increased 6.9%.

Commenting on the results, CEO Mark Lemond said, "The comparable-store sales increase in the fourth quarter was the highest quarterly sales increase in the company's history. Our customers' response to our better fashion assortment resulted in double-digit comparable-store sales increases for both our women's and men's non-athletic footwear. In turn, these record sales led to a record-breaking earnings performance in the fourth quarter. Our diluted earnings per share for the quarter increased over 140% compared to the fourth quarter of fiscal 2004.

"The fourth quarter was just one part of a record-breaking year. Fiscal 2005 ended with a comparable-store sales increase at 6.9%, the best annual performance in our history. As was the case for the fourth quarter, each of our product categories had comparable-store sales increases for the full year, with women's non-athletic and men's non-athletic achieving solid double-digit increases. Our annual earnings were record breaking as well. For fiscal 2005, our diluted earnings per share were $1.40, a 46% increase from 96¢ for fiscal 2004.

"The footwear industry is positioned for a solid performance in fiscal 2006. We feel we can capitalize on the positive retail environment and build upon our momentum from the second half of fiscal 2005 by continuing to attract customers with our broad selection of today's fashions at value prices."

SCVL opened 15 new stores in FY05 and closed seven to end the year with 263 stores. Total gross retail selling square footage increased 2.6% to end the year at 3.0 million square feet. SCVL expects to open 13 to 15 new stores and close five in FY06.

1Q06 EPS are expected to be 52¢-54¢. This assumes a total sales increase of 5%-6% and comp-store sales of 4%-5%. 1Q05 EPS were 45¢. For FY06, EPS are expected to be $1.65-$1.75.

CONFERENCE CALL DETAILS: The company's $Q comps came in as follow: November +12.8%; December +10.6%%; and January +11.8%. One of the goals the company set for itself after FY04 was to increase the percentage of sales accounted for by women's non-athletic. The goal is for the segment to account for 28%-30% of sales. In FY04, it was 23.4%; in FY05, it was 25.4%. The segment had double-digit comps in 4Q and comps in the high teens in FY05. Men's non-athletic, which includes fusion footwear, double digits in both 4Q and FY05.

Children's, which includes athletic, was up mid-single digits in 4Q and low-single digits in the FY. Boots and basketball disappointed. Adult athletic was up high-single digits in the quarter and low-single digits in the year. Women's rose double digits in the quarter. Performance and skate shies drove sales. There was weakness in walking, basketball and Classics. Management complained about having no compelling new basketball offerings in late 2005, but it had hopes that Nike would be selling the chain a strong basketball offering in 2H. SCVL said that the higher prices of performance running was boosting the average ticket, and it expected to see this trend continue.

The average sales per square foot hit a peak of $237 in FY01. Sales were $207 in FY04, but turned upward in FY05 to $219.

In FY05, the company began a major remodeling effort, part of which was to being women's non-athletic up front in the stores. But SCVL found there was no significant difference in sales after the remodeling. As a result, it will curtail new remodels to stores whose leases are coming up in 2006.

SCVL introduced new TV and radio ads in 2005, which, it believed, helped to drive sales. It attributed a good part of the traffic increases to the ad campaign. A new campaign begins March 29. At the store level, SCVL introduced new graphics and visuals. This program will continue into 2006.

SCVL is introducing a markdown optimization software program in 1H. Once buyers are competent with that program, SCVL will employ a zone pricing platform. At the store level, SCVL is introducing an online locator that will enable store clerks to locate sizes and products online.

SCVL will lease a new 60,000-square-foot headquarters in Evansville, IN. It will be online in early 2007. A new 410,000-square-foot DC will be operational in late 2006.


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Mark Lemond

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